Ride the home price bub­ble at your own risk

ill home prices in Bei­jing still go up in the sec­ond half year? Shall I buy an apart­ment right now?”

As a busi­ness re­porter who has been cov­er­ing the real es­tate sec­tor for al­most a decade, this is one of the ques­tion­smy friends ask me most fre­quently.

Frankly speak­ing, I amalso con­fused by the mar­ket right now, just like in­dus­try an­a­lysts.

After a record-strong re­bound, both in trans­ac­tions and prices, after the Chi­nese Lu­nar NewYear (in Fe­bru­ary), I used to be­lieve the cap­i­tal’s real es­tate mar­ket would sta­bi­lize, or even see a price dip, in the sec­ond half of the year. But, I’ve been proven wrong so far.

China’s ma­jor cities sawhome prices grow for the 15th con­sec­u­tive month in a row in July, with the growth rate con­tin­u­ing to ac­cel­er­ate, ac­cord­ing to re­search by the China In­dex Academy.

Ji­ax­ing in Zhe­jiang prov­ince grewby 4.94 per­cent, Lang­fang in He­bei 4.22 per­cent, andHe­fei in An­hui 4.17 per­cent— all lead­ing the price growth last month, while Bei­jing, Shang­hai and Shen­zhen are among the top 25.

When I talked with a re­search chief of an in­ter­na­tional real es­tate con­sul­tancy, she said writ­ing a re­search note on home prices also gave her a headache.

“Frankly speak­ing, the cap­i­tal’s home prices have been ex­traor­di­nar­ily high for me. But, given the ex­ist­ing sup­ply and de­mand re­la­tion­ship, I amafraid the prices may still go up fur­ther, ex­clud­ing pol­icy fac­tors,” she said.

Cur­rently, there are around 90,000 apart­ments avail­able for sale in Bei­jing. The stock of 110,000 apart­ments is usu­ally re­garded as a bench­mark: If the stock is higher than that, home prices will be un­der pres­sure.

Around two to three years ago, I con­sid­ered 50,000 yuan ($7,570) per square me­ter for an apart­ment out­side Bei­jing’s Fifth Ring Road a re­ally high price, but now the cost of land price in the cap­i­tal’s sub­ur­ban ar­eas has hov­ered around 40,000 yuan per sq m, which means the sales prices of those projects will be prob­a­bly range from 60,000 yuan to 70,000 yuan per sq m.

Huang Chaoyang, chair­man of Hong Kong-listed China SCE Prop­er­tyHold­ings Ltd, said he be­lieves home prices in the sub­ur­ban ar­eas of Bei­jing, Shang­hai and Shen­zhen could reach 60,000 yuan to 80,000 yuan per sqmif the apart­ments have easy ac­cess to sub­ways and qual­ity ed­u­ca­tional fa­cil­i­ties, cit­ing HongKong as an anal­ogy. That’s why the com­pany spent 3.95 bil­lion yuan in Fe­bru­ary snap­ping up a land par­cel in Bei­jing’sMen­tougou dis­trict, an area out­side the cap­i­tal’s Sixth Ring Road, with floor space cost­ing more than 40,000 yuan per sq m.

Henry Chin, head re­searcher at CRBE Asia Pa­cific, is also quite op­ti­mistic about the prospects of the res­i­den­tial mar­kets in those met­ro­pol­i­tan cities, cit­ing the con­tin­u­ous en­try of tal­ented peo­ple as cre­at­ing strong de­mand which sup­ports the surg­ing prices.

China’s real es­tate mar­ket, how­ever, is a typ­i­cal pol­icy mar­ket, which means home­buy­ers should not only pay at­ten­tion to the sup­ply-de­mand re­la­tion­ship, but also read be­tween the lines of im­por­tant news.

Curb­ing as­set bub­bles is one of the pri­or­i­ties for the cen­tral au­thor­i­ties, said the Po­lit­i­cal Bureau of the Com­mu­nist Party of China Cen­tral Com­mit­tee in late July. This was the sec­ond time that the cen­tral au­thor­i­ties used the term “as­set bub­bles” this year, show­ing their de­ter­mi­na­tion to curb the grow­ing risks in the prop­erty sec­tor.

As one of the most direct driv­ers push­ing up home prices, mon­e­tary pol­icy is a very im­por­tant fac­tor to watch in the sec­ond half of the year. So far, I don’t see signs of fur­ther loos­en­ing up. And, the gov­ern­ment has a num­ber of mea­sures to take if the home prices keep soar­ing. Suzhou andNan­jing in Jiangsu prov­ince, for in­stance, just an­nounced poli­cies to re-im­pose house pur­chase curbs and raise the down pay­ment for sec­ond-home pur­chases.

My sug­ges­tion is: If you need an apart­ment ur­gently, for in­stance, for a mar­riage or for chil­dren’s ed­u­ca­tion, then just buy it. But, if you are mak­ing a home pur­chase for a pure in­vest­ment pur­pose, you need to think twice— the bub­ble may swell fur­ther, but the chance of a burst is also in­creas­ing.

By the way, for­eign­ers are now al­lowed to buy only one home in China.